Acct515 Mini Case Homework 1

2-6- Statement of Retained Earnings

Previous retained earnings + net income = ending retained earnings before dividends

$780m +$50m= $830m

2. Ending retained earnings before dividends- ending retained earnings after dividends

$830m- 810M= 20 million in dividends

2-7 Corporate Tax Liability Tally

A. 70 percent of dividends are excluded

Taxable Income 365,000

-Less Interest deduction -50,000

+ Dividends received +4,900( $15,000)(1-.70)

Taxable income $319,500

39% is the marginal tax rate

Tax= (319,500 - 100,000)(.39)= 22,500+ 85,605=$107,855

After tax income

$319,500 taxable income- $107,855 taxes+ 10,500 non taxable dividends=

$222,145= net income

Non taxable dividends

$15,000*.70= $10,500

Average tax rate= Taxable income / Taxable operating income

107,855/319500= 33.7574 rounded to 33.8%--company average tax rate.

Problem 2-9

FLA Bond 5%

AT &T Bond before tax yield 7.5

AT &T Bond 7.5% minus Taxes = 7.5% -7.5%= .35

Taxes=35%

AT& T preferred stock 6% (.70) tax exempt

ATY= (Before tax yield)(1-.35)

AT&T Bond=(7.5)(1-.35)= 7.5*.65=4.88% ATY

Florida Min bond= 5% (1-0)=5%

Preferred Stock AT&T

(.6)[1-(.3)(.35)]= (.6)(1-.105)=.6*895=5.37%

MINI CASE

A. Corporate financing helps in several ways by identifying the best strategies for individual projects by best helping the firm. It best helps in devising forecast the funds to their company.

B. The 3 organizational forms to of starting a business are:.Sole proprietorship, partnership ,and corporation. The advantages of proprietorship are. ease of formation , subjecting to a few regulations, and no corporate income taxes

C. When a corporation goes public it sets up and IPO to raise capital and this allows founders and investors to tap into their wealth and growing afterwards it must enter “IPO” initial public offering which means raising cash and allowing founders & pre –IPO investor to take part in their wealth

D. Primary objective of management is to be able to...